Publication date: Available online 19 July 2017
Source:Insurance: Mathematics and Economics
Author(s): Francesco Menoncin, Luca Regis
We solve the consumption/investment problem of an agent facing a stochastic mortality intensity. The investment set includes a longevity-linked asset, as a derivative on the force of mortality. In a complete and frictionless market, we derive a closed form solution when the agent has Hyperbolic Absolute Risk Aversion preferences and a fixed financial horizon. Our calibrated numerical analysis on US data shows that individuals optimally invest a large fraction of their wealth in longevity-linked assets in the pre-retirement phase, because of their need to hedge against stochastic fluctuations in their remaining life-time at retirement.
Source:Insurance: Mathematics and Economics
Author(s): Francesco Menoncin, Luca Regis